Tuesday, May 8, 2012

Singapore: First World Environment, Third World Prices

Andy Xie in his latest Caijin article gave me what I was looking for: I quote him,

Multinationals are reporting good earnings and cash flow, which is no coincidence. Through cost arbitrage and technical progress, multinationals can growth profits at 10 percent, even if the global economy is growing at no more than 7 percent in nominal terms, mainly due to inflation.
The rise of multinationals limits government policymakers. For example, an economy's labor market must be flexible to compete in the world, or risk watching multinationals move elsewhere to save money. Moreover, it's become difficult to tax multinationals, since they can park income anywhere.

In one line, that's why Singapore the ultimate price taker (I learnt that when I was at Shell) ends up offering a First World environment at Third World prices which can only be achieved by importing cheap FTs.

We ought to have developed our local champions long ago as some of our thinkers kept harping, but LKY thought we didn't have the talent pool to do that. So here we are now. What should we do? I can go on and on or just use one word: Leadership. We need courageous leadership, not just to tell us the hard truths but dare to take us to the edge and jump over.

Since recorded history, this one fact had not changed. A people looked to their common past to understand their present and forge a path to the future. For us, that was being thrown out of Malaysia in 1965. We need to dust that script from the drawer to use again.

If we have courageous leaders, we will have solutions or else another version of the European crisis will be our fate.

The most advanced societies especially America is trying to trade brainpower for courage. It will not work. And as my daughter is beginning to learn that sometimes the only way to learn an important lesson is the hard way, we will just have to be patient for the necessary lessons to be learned. As our circumstances become more dire, erstwhile unthinkable solutions become thinkable.

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